Could Authors Be Liable to Consumers If an E-Bookstore Dies?

This weekend, Borders (s bgp) let their creditors know they’d be holding off on paying rent at the end of January, in a bid to preserve liquidity. Sure, many have known for some time that Borders was in bad financial shape, but telling your landlord you’re skipping rent is a sign things have gone from bad to worse and that the end — or at least a formal filing of bankruptcy — is nigh.

With a major book retailer — and e-book storefront — in danger of insolvency, this raises some interesting implications for book publishers. What would, for example, happen if Borders were to simply vanish? Right now it’s unclear, and this question is even more complicated with the arrival of the agency pricing model.

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Apple Starts the E-book Pricing Revolution

When Apple (s aapl) released the iPad, they not only set off a revolution in mobile computing, but they also created a huge wave of change in e-books. Two big changes were increasing the awareness of e-books among the general consumer public and introducing the book-as-app (also known as enhanced e-books) category, but perhaps the biggest change was how Amazon upturned the e-book pricing Apple cart with the introduction of the agency pricing model.

Agency pricing was a radical shift from the previous wholesale model, which let book retailers control pricing. In the past, retailers, including Amazon (s amzn), could sell a book at whatever price they chose, but would compensate the publisher based on the list price. With e-books, this model was problematic for publishers because retailers — and Amazon in particular — discounted retail prices so heavily to gain market share that publishers worried they were permanently lowering consumers’ expectations around pricing.

But with the release of the iPad, Apple forced everyone — including Amazon — to accept the agency model, which gave publishers the ability to set prices. But while the move to the agency model resulted in bigger margins for publishers, it also meant bigger responsibility in the form of a more direct relationship with the customer, and, as e-book blogger Mike Cane points out, should, say, a book retailer go out of business.

Could the Authors Themselves Be Responsible?

I asked Mark Coker, CEO of indy book platform Smashwords, what he thought about the implications for publishers if a big retailer suddenly were to go out of business. He pointed out that a major bookseller like Borders, with lots of accounts,would no doubt sell its assets (and its liabilities) to another party in a bankruptcy, which means that someone — possibly even Apple, Amazon or a Kobo — would inherit those consumer retail relationships.

He’s right, but regardless, it’s worth looking at whether book publishers and even independent authors themselves have some sort of increased responsibility with agency model e-book pricing. Remember, with e-books, an independent author herself can essentially become a publisher on Amazon or another platform. While Amazon isn’t going out of business soon, there’s no doubt that in the future some authors such as Seth Godin or others might act as their own publisher and sell through a multitude of different sales platforms, including many with less healthy balance sheets than Amazon or Apple.

Would these author/publishers themselves ultimately be responsible if an e-bookstore went out of business and a consumer’s e-book disappeared? Kindle’s self-publication terms of service indicate the author gives rights for digital distribution to the retailer/platform owner, but does that completely excuse the publisher from any and all complaint — or legal action — by the consumer should the retailer/platform disappear?

No doubt that’s a question for the legal eagles to look into, and with Borders and its e-bookstore on the precipice of bankruptcy, it’s probably time that book publishers, including the newly entrepreneurial author-enterpreneur, start asking too.

Ebooks are downloads so once purchased they are in the possession of the buyer- so why would the seller be liable? I don’t get the logic.
I can tell you, as a start-up publisher, that I don’t believe the agency model will fly for a variety of reasons. The primary one is that it is an attempt by the traditional publishing business to cling to a business model that no longer exists. The distribution is completely changed just as iTunes changed the distribution of music whether the labels liked it or not. Have the publishers not learned anything from that mess?
The fact is that two middlemen (distributors and retailers) have been replaced by one (Amazon/iTunes, etc.), leaving less hands in the pot. This combined with zero production, warehousing and returns costs means the old pricing models make no sense. Do they think we are idiots?

The agency model is now the de facto pricing model for e-books; the rainmaker you cite (Apple) is the one that pushed it on the market.

Digital goods should have lives; they exist on digital bookshelves. If the bookshelf is broken (i.e. the e-reader), the consumer will go to the store and ask for a replacement. We all have these replacement-channels (I’ve re-downloaded MP3s from Amazon, re-download from iTunes, I re-stream and watch a Netflix movie again, etc).

So if a consumer bookshelf disappears because of a company going out of business, it’s an issue.

And remember – the ebook store is a sales-agent; they don’t own the inventory but simply act as a transaction engine and take their cut. They would be the place the consumer would go if there’s an issue with the product, but if they’re gone, the consumer will ask who do they go to now.

The scenario I think is relevant is if a large mega-author just decided to self-publish books using the agency model on storefront x. What if the storefront got hacked the day after their e-book went on the market and all the accounts were wiped? Would the consumer look to the storefront if they ceased to exist, or to mega-author, to replace their e-book?

So while it can be reasonably assumed that someone will swoop in and pick the bones clean on Borders, what about smaller indie publishers? Any time DRM is involved in a digital sale, the potential is there for the digital content to disappear, no matter where the file is stored.

The real problem here is not what happens to the store, but what happens to the e-book. If we are talking real book a store going out of business is no big this as the customer already has the book. But the premise here is that should a e-book vendor disappear then the e-book will too. As the problem last year when Amazon “broke” into people’s kindles and deleted 1984 without warning or notice shows e-book ownership is not the same as book ownership. Amazon could never forcefully recall a regular book that was sent out (and paid ore) in error.

What the article really says is that we need better consumer protections for e-book so silly questions like this article do not arise.

@Eric – agreed that we need better protections. But e-books can get lost, are given as gifts, and today having an account with someone lets you essentially go back and get a fresh copy, etc. Having a retail storefront to go back to is important no matter what the product someone buys online. If that goes away, what happens then? That was the question I was exploring. The retail agent here isn’t really anything more than a sales agent, and they never take possession of the “product” (unlike in traditional wholesale merchandising), so I am not sure why this is a silly issue to explore.

I don’t see how authors have any liability at all. After reading your article, I still don’t.

The most common ebook approach is the same as Itunes: that a book is downloaded, so it changes possession like a physical object. It’s little different than buying a physical book legally. You have to backup and restore your own copy of the ebook.

If you’ve been confused by the Kindle store, you’re just re-downloading a copy multiple times, but there is no legal requirement I am aware of to keep that service available should the retailer go out of business.

And I can’t imagine why an author would be on the hook for an app sold on a dead app store. Apple’s app store uses local storage, so that would keep them insulated if they pull an app with content – you still own what you purchased previously, even if you can’t get it on a new device. This is consistent with most consumer protection laws in the US.

More relevant this week, apple could pull the kindle app from the iOS and you’d legally have no recourse, even if that was your only mobile means of reading the book. You don’t have any agreement or right to read an ebook on any particular or future devices. They’ve written their user agreements carefully to avoid future obligations, for obvious reasons.

We’ve had mp3 companies go out of business and no rock bands were sued, so please explain clearly why you think authors could be at risk. You never tackled the topic you gave in your title. And the speculation in my mind is unfounded, even after reading your article to the end. There’s no reason consumers could get standing against authors for a e-store closing.

The damage that the title and poorly researched article does to young ebook companies makes this post irresponsible. Why not make an effort to add some real insight by seeking the answers before posting this question? You’ve essentially ignored the most probable flow of events and fear mongered. Disappointed.

Hey David – perhaps you’d like to suggest how you think the insolvency of an e-book storefront will impact those self-published authors. I’d like to know your opinions on this, if you have any. I actually did do research and people in the industry couldn’t really answer the question of what the implications were, so that tells me alot of folks don’t know. Apparently I should have asked you first.

Michael, you gave the most obvious answer yourself in the article – that Borders’ assets would likely be picked up by another company. Your source says such a course events would ‘no doubt’ happen, then you go on to say that your source is right. Then you tell us to ignore the most probable (or, according to your source, ‘no doubt’) course of action. You go on to ask the question of author liability again, without answering it, but in such a way that almost any author who reads this would begin to worry about his or her liabilities when it comes to ebook distribution.

I’m very much ok with the questions you pose. I’m only concerned that you dismissed the most obvious course of action halfway through your article, then proceeded to ask questions but not provide answers.

Aside from the most obvious answer you shared then dismissed – if an ebook platform goes bankrupt, another will likely find a way to take ownership of its customer relationships – there are any number of different ways that this can be resolved in favor of consumers. For one, what the hypothetically soon-to-be-disolved ebook platform has already sold can be provided to consumers in an alternative digital format that he/she can be read using another ebook reader application. Or in the event that another company doesn’t take over, the bankrupt entity can opensource its platform and allow the opensource community to take over.

Oh, and Michael, I didn’t imply anywhere that you should have asked me first, so I don’t know that you have any grounds to make such an obtuse (obtuse only because you didn’t know me, so how could it be reasonable to say that you should have asked me first) – but obviously sarcastic – remark.

One more thing. Your ‘research’ – was that limited to reading a few articles then letting it roll around in your head? Because despite you citing the CEO of Smashwords as a source, you simply dismissed his opinion.

Sorry for the sarcasm, but I figured sarcasm was better than accusing someone of being irresponsible without posing any real opinions or facts of your own.

While there’s an obvious course of action, it’s not always the ONLY course of action. Circuit City, the second largest electronics retailer in the US, couldn’t find a buyer so basically just shut its doors after Christmas 2008. Not every big storefront finds a buyer. I still think its a legitimate question to ask who would an ebook buyer go to if they lost their e-book (lost hardware, stolen, etc), wen to redownload the e-book and their store was gone.